Too many people underestimate the emotional component of option trading. They think it will be easy to pull out when they're losing money... and ride a winner when it's making money.
But (and this is a BIG "but") what we think will be easy for us to do is, in actuality, extremely difficult.
Since emotions can cause you to make bad decisions, I recommend developing a solid set of trading rules to "neutralize" your emotions. Otherwise, your emotions may wind up getting the best of you -- and getting the best of your trading account as well.
When option traders finally put real money in the market, they're likely to experience one of these common emotional responses...
But first I want to share a quote I stumbled upon while reading a book.
"Investing in stocks is definitely the best course of action, just so long as you're the kind of person who can will him/herself to stop in the middle of an orgasm." -Jeff Yeager, The Ultimate Cheapskate's Road Map to True Riches, p. 204
When I read this, I laughed out loud. Because I think it's fairly accurate in describing the amount of self-control an option trader must have.
* When you're in a winning trade, you have to exit when things are still looking relatively good.
* And when a trade moves against you, you still have to close your position, even if you think the situation could turn around in you favor.
This is definitely NOT easy.
But not so hard if you develop and FOLLOW a strict set of trading rules.
Now, get this. Most new traders allow their emotions to control their trading.
Example: New traders are notorious for taking profits too early. That's because their "inner miser" is saying, "Hey, you've made enough money. You should get out while you still can."
This is greed talking. They listen, so they take profits early.
Losing trades are different. When a new trader sees a trade move against him, he will tend to wait too long before getting out. His emotions will tell him, "Your account is only down a little bit. There's still time for this to turn around. Don't worry, you'll make money."
Naturally, they're listening to the voice of fear, the fear of loss. If they listen, they will experience substantial losses.
If you're goal is to make a lot of money as a professional option trader, you simply have to keep your emotions in check. Drown out the voices of fear and greed -- even when they're yelling at you.
Use a solid set of trading rules to govern the emotional component of option trading.
But (and this is a BIG "but") what we think will be easy for us to do is, in actuality, extremely difficult.
Since emotions can cause you to make bad decisions, I recommend developing a solid set of trading rules to "neutralize" your emotions. Otherwise, your emotions may wind up getting the best of you -- and getting the best of your trading account as well.
When option traders finally put real money in the market, they're likely to experience one of these common emotional responses...
But first I want to share a quote I stumbled upon while reading a book.
"Investing in stocks is definitely the best course of action, just so long as you're the kind of person who can will him/herself to stop in the middle of an orgasm." -Jeff Yeager, The Ultimate Cheapskate's Road Map to True Riches, p. 204
When I read this, I laughed out loud. Because I think it's fairly accurate in describing the amount of self-control an option trader must have.
* When you're in a winning trade, you have to exit when things are still looking relatively good.
* And when a trade moves against you, you still have to close your position, even if you think the situation could turn around in you favor.
This is definitely NOT easy.
But not so hard if you develop and FOLLOW a strict set of trading rules.
Now, get this. Most new traders allow their emotions to control their trading.
Example: New traders are notorious for taking profits too early. That's because their "inner miser" is saying, "Hey, you've made enough money. You should get out while you still can."
This is greed talking. They listen, so they take profits early.
Losing trades are different. When a new trader sees a trade move against him, he will tend to wait too long before getting out. His emotions will tell him, "Your account is only down a little bit. There's still time for this to turn around. Don't worry, you'll make money."
Naturally, they're listening to the voice of fear, the fear of loss. If they listen, they will experience substantial losses.
If you're goal is to make a lot of money as a professional option trader, you simply have to keep your emotions in check. Drown out the voices of fear and greed -- even when they're yelling at you.
Use a solid set of trading rules to govern the emotional component of option trading.
About the Author:
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